<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Under the Securities Act of 1933
Registration No. 333-28825
Prospectus Supplement
(To Prospectus dated June 20, 1997)
1,000,000 SHARES
HS RESOURCES, INC.
COMMON STOCK
------------------------
Natural Gas Partners, L.P., (the "Selling Stockholder") has sold 1,000,000
shares of Common Stock, $.001 par value ("Common Stock"), of HS Resources, Inc.
(the "Company") at a price of $17.25 per share in a direct, privately negotiated
transaction between the Selling Stockholder and a single purchaser. The Selling
Stockholder paid a commission of $.02 per share to the broker-dealer through
which the transaction was executed, resulting in net proceeds to the Selling
Stockholder of $17,230,000.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
September 30, 1997
<PAGE> 2
DESCRIPTION OF COMMON STOCK
The following is a description of certain general terms and provisions of
the Common Stock. The summary of terms of the Company's Common Stock contained
in this Prospectus Supplement does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, Bylaws and Rights Agreement, dated as of February 28, 1996,
between the Company and Harris Trust Company of California (the "Rights
Agreement"), each of which has been incorporated by reference in the
accompanying Prospectus.
The Company's Certificate of Incorporation authorizes the issuance of
30,000,000 shares of Common Stock. No class of capital stock of HSR entitles the
holder thereof to any preemptive rights to purchase or subscribe for shares of
any class or any other securities.
All issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. The holders of Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of common stockholders. The
Common Stock does not have cumulative voting rights. Each share of Common Stock
is entitled to participate equally in dividends, as and when declared by the
Company's Board of Directors, and in the distribution of assets in the event of
liquidation, subject in all cases to any prior rights of outstanding shares of
the Company's preferred stock. The shares of Common Stock have no preemptive or
conversion rights, redemption rights or sinking fund provision.
The outstanding shares of Common Stock are listed on The New York Stock
Exchange and trade under the symbol "HSE." Harris Savings and Trust is the
transfer agent, registrar and dividend disbursing agent for the Common Stock.
PREFERRED STOCK PURCHASE RIGHTS
On February 28, 1996, the Company's Board of Directors declared a dividend
distribution of one Preferred Stock Purchase Right (a "Right") for each
outstanding share of Common Stock. The description and terms of the Rights are
set forth in the Rights Agreement. The distribution was made as of March 14,
1996, to stockholders of record on that date. Each Right entitles the registered
holder of Common Stock to purchase from the Company one one-hundredth ( 1/100)
of a share of Preferred Stock for a price of $60.00 per one one-hundredth
( 1/100) of a share. The Rights will expire at the close of business on March
14, 2006, unless earlier redeemed by the Company as described in the Rights
Agreement.
Initially, the Rights will not be exercisable or represented by a separate
certificate but will trade together with the Common Stock. The Rights, unless
redeemed prior thereto, become exercisable only upon the close of business on
the day which is the earlier of (a) the tenth day after a public announcement
that a person or group of affiliated or associated persons, with certain
exceptions as noted in the Rights Agreement, has acquired beneficial ownership
of 15% or more of the Company's voting stock (an "Acquiring Person") or (b) the
tenth business day (or such later date as may be determined by the Company's
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) after the commencement or announcement of
an intention to commence a tender or exchange offer, the consummation of which
would result in the ownership of 30% or more of the Company's voting stock (even
if no stock is actually purchased pursuant to such offer). An Acquiring Person
does not include, among others, the Selling Stockholder unless it is the
beneficial owner of 22.193% or more of the voting stock of the Company. All
issuances of Common Stock after the date of the Rights Agreement will include
Rights.
For as long as the Rights are redeemable pursuant to the terms of the
Rights Agreement, the Company may, except with respect to the redemption price
or date of expiration of the Rights, amend the Rights in any manner, including
an amendment to extend the time period in which the Rights may be redeemed. At
any time when the Rights are not then redeemable, the Company may amend the
Rights in any manner that does not materially adversely affect the interests of
holders of the Rights as such. Amendments to the Rights Agreement from and after
the time that any Person (as defined in the Rights Agreement) becomes an
Acquiring Person requires the approval of a majority of the Continuing Directors
(as defined in the Rights Agreement).
S-2
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PROSPECTUS
2,864,225 SHARES
HS RESOURCES, INC.
COMMON STOCK
OFFERED BY THE SELLING STOCKHOLDER
The shares of Common Stock, $.001 par value ("Common Stock"), of HS
Resources, Inc. (the "Company" or "HSR") offered by this Prospectus (the
"Shares") are for the account of a certain stockholder of the Company (the
"Selling Stockholder"). The Company will receive none of the proceeds from the
sale of the Shares. The Selling Stockholder directly, through agents designated
from time to time, or through dealers or underwriters also to be designated, may
sell the Shares from time to time on terms to be determined at the time of sale.
To the extent required, the specific Shares to be sold, the terms of the
offering, including price, the names of any agent, dealer or underwriter, and
any applicable commission, discount or other compensation with respect to a
particular sale will be set forth in an accompanying Prospectus Supplement. See
"Plan of Distribution" and "Selling Stockholder."
The Company's Common Stock is listed on The New York Stock Exchange
(Symbol: "HSE"). The Shares have been listed on such exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED
HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The Selling Stockholder and any broker-dealer, agents or underwriters that
participate with the Selling Stockholder in the distribution of the Shares may
be deemed to be underwriters within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commission received by them and any
profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. See "Plan of
Distribution" for indemnification arrangements regarding the sales by the
Selling Stockholder. The Company has paid substantially all of the costs of this
offering, estimated at $35,000.
THE DATE OF THIS PROSPECTUS IS JUNE 20, 1997
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, AGENT OR DEALER. THIS
PROSPECTUS AND ANY ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT, NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
THE IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR RESPECTIVE
DATES.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 3
Disclosure Regarding Forward-Looking Statements............. 3
The Company................................................. 5
Risk Factors................................................ 6
Use of Proceeds............................................. 9
Selling Stockholder......................................... 10
Plan of Distribution........................................ 11
Validity of Securities...................................... 11
Experts..................................................... 11
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company is currently
subject to the periodic reporting and other informational requirements of the
Exchange Act. Such reports and other information may be inspected and copied at
the public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements, and other
information. HSR's Common Stock is listed on The New York Stock Exchange (the
"NYSE"). Reports, proxy and information statements and other information
relating to HSR can be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005. Any such request and requests for the agreements
summarized herein should be directed to James M. Piccone, Secretary, HS
Resources, Inc., 1999 Broadway, Suite 3600, Denver, Colorado 80202, telephone
(303) 296-3600.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
Shares. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the
2
<PAGE> 5
Registration Statement and the exhibits thereto for further information with
respect to the Company and the Shares.
The Registration Statement and the exhibits thereto can be obtained from or
inspected and copied at the public reference facilities maintained by the
Commission as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K as amended by the Company's Form
10-K/A-1 for the year ended December 31, 1996, Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 and Current Report on Form 8-K, filed February
26, 1997, are incorporated by reference in this Prospectus. All documents filed
by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the securities registered hereunder shall be
deemed to be incorporated by reference in this Prospectus and to be part hereof
from the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement modified or superseded shall not be deemed, except
as so modified or superseded, to constitute part of this Prospectus.
Upon request, the Company will provide without charge to each person to
whom a copy of this Prospectus has been delivered a copy of any documents
incorporated by reference herein (other than exhibits unless the exhibits are
specifically incorporated by reference into this Prospectus). Requests should be
directed to James M. Piccone, Secretary, HS Resources, Inc., 1999 Broadway,
Suite 3600, Denver, Colorado 80202.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes and incorporates by reference statements that are
not purely historical and are "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, including
statements regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. All statements other than statements of
historical facts included or incorporated by reference in this Prospectus,
including without limitation, statements made herein under "Risk Factors" and
statements in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 under "Business," "Properties," "Legal Proceedings and
Environmental Issues" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," regarding reserves and their values,
planned capital expenditures, increases in oil and natural gas production,
trends or expectations concerning oil and gas prices, the number and prospective
nature of anticipated wells to be drilled in 1997 and thereafter, development
potential, infill potential, drillsite potential, exploitation and exploration
prospects and leads, drilling prospects, consolidation opportunities and the
Company's financial position, business strategy and other plans and objectives
for future operations, potential liabilities or the expected absence thereof,
the potential outcome of environmental matters, litigation and other proceedings
are forward-looking statements. All forward-looking statements included or
incorporated by reference in this Prospectus are based on information available
to the Company on the date hereof, or, with respect to documents incorporated by
reference, on the date thereof, and the Company assumes no obligation to update
such forward-looking statements. Although the Company believes that the
assumptions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct or that the Company will take any actions that may presently be
planned. There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves and projecting future rates of production
and timing of development expenditures, including many factors beyond the
control of the Company.
3
<PAGE> 6
Many factors may affect the Company's expectations and plans. Capital
expenditure and financing plans may change in connection with the success of
drilling activities, the general availability of capital, interest rates, and
cash flow available from operations. Cash flow available from operations may
change depending on costs of materials and services, regulatory burdens and
commodity prices. Oil and natural gas prices are volatile, and there are several
potentially significant adverse effects to the Company which can result if
product prices decline materially. First, lower product prices will adversely
impact the Company's cash flow and could cause the Company to (i) curtail its
capital program, (ii) borrow additional amounts under its revolving credit
agreement, or (iii) issue additional debt or equity securities. Second, lower
product prices could cause the borrowing base under the Company's bank credit
agreement to be reduced and certain covenant tests to be adversely affected.
Third, under rules promulgated by the Commission, companies that follow the full
cost accounting method are required to make quarterly "ceiling test"
calculations. Lower product prices adversely impact the ceiling calculation.
Should the Company realize sustained lower product prices, it could be required
to write down its oil and gas properties, resulting in a non-cash charge against
earnings.
Certain additional important factors that could cause actual results to
differ materially from the Company's forward-looking statements are disclosed
herein under "Risk Factors," under "Business," "Properties," "Legal Proceedings
and Environmental Issues," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 and in the Company's
Current Report on Form 8-K filed February 26, 1997, each of which is
incorporated by reference herein. All subsequent written or oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by such factors.
4
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THE COMPANY
HS Resources, Inc. is a leading United States independent energy company
engaged in the development, acquisition, exploitation, exploration, production
and marketing of oil and natural gas. Through its experienced management and
technical staff, the Company has consistently increased reserves and production
and has established itself as one of the most efficient operators in the
industry. HSR has created a diversified asset base in three core geographic
areas: the Denver-Julesburg Basin (the "D-J Basin") of the Rocky Mountains, the
Anadarko and Arkoma Basins of the Mid-Continent and the on-shore Gulf Coast
area. It has done so by executing a large scale development drilling program
focused in the Wattenberg Field area of the D-J Basin and through the
acquisition of all the D-J Basin properties owned by Basin Exploration, Inc.
(the "Acquisitions"), the merger with Tide West Oil Company (the "Merger") and
the formation of Gulf Coast joint ventures. The Company believes that each core
geographic area presents operational and financial opportunities, positioning
the Company to maximize the benefits of its more predictable, long-lived
production in the D-J Basin, while providing meaningful exposure to potential
exploitation and exploration projects in the Mid-Continent and Gulf Coast, which
exhibit higher return potential. HSR has an inventory of growth opportunities
that includes in excess of 2,000 infill, development and exploratory drilling
locations and over 1.1 million gross undeveloped acres.
The Company has achieved substantial growth in reserves, production,
revenues and operating cash flow over the past five years. HSR has increased
reserves from 20.8 MMBoe as of December 31, 1990, to 142.0 MMBoe as of December
31, 1996. HSR also increased production from 0.9 MMBoe for the year ended
December 31, 1991, to 7.6 MMBoe for the year ended December 31, 1996. Oil and
natural gas revenues and operating cash flow (defined as net income before
depreciation, depletion and amortization and deferred income taxes) also have
grown significantly over this period, increasing from $12.8 million and $5.4
million, respectively, for the year ended December 31, 1991, to $107.3 million
and $56.5 million, respectively, for the year ended December 31, 1996.
At December 31, 1996, the Company's reserves had an estimated pre-tax
present value (discounted at 10%) of $1,131 million. Natural gas constituted
approximately 76% of the Company's reserves and approximately 76% of the
Company's reserves were classified as proved developed. At December 31, 1996,
the Company operated approximately 74% of its 3,562 wells. Management believes
that its ability to control the operation of its wells and to minimize overhead
expenses has contributed to the Company achieving one of the lowest cost
structures in the industry.
The Company's principal executive office is located at One Maritime Plaza,
15th Floor, San Francisco, California 94111 and its telephone number at such
address is (415) 433-5795.
5
<PAGE> 8
RISK FACTORS
Prospective purchasers of the Shares should consider carefully the specific
factors set forth below, as well as the other information set forth elsewhere or
incorporated by reference in this Prospectus, in connection with their
investment in the Company.
VOLATILITY OF OIL AND NATURAL GAS PRICES; MARKETABILITY OF PRODUCTION
The Company's revenues, profitability and future rate of growth are
substantially dependent upon prevailing prices for its oil and natural gas.
Hydrocarbon prices can be extremely volatile and in recent years have been
depressed at times by warm weather, weak demand and excess total domestic and
imported supplies. Oil and natural gas prices have risen recently, but there can
be no assurance that such price levels will be sustained. Prices are also
affected by actions of state and local agencies, the United States and foreign
governments and international cartels. These external factors and the volatile
nature of the energy markets make it difficult to estimate accurately future
prices of oil and natural gas. Prices for D-J Basin natural gas, which
represents a significant portion of the Company's overall production, were
depressed until recently and have at times been more volatile than the prices
prevailing in the broader United States natural gas market. Although from time
to time the Company hedges a portion of its oil and natural gas production to
provide some protection from price declines, any substantial or extended decline
in the price of oil or natural gas would have a material adverse effect on the
Company's financial condition and results of operations. The marketability of
the Company's production depends upon the availability and capacity of
refineries, natural gas gathering systems, pipelines and processing facilities.
Federal and state regulation of oil and natural gas production and
transportation, general economic conditions and changes in supply and demand all
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and thus
represent a significant risk. See "-- Governmental and Environmental Regulation"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference in this Prospectus.
EFFECTS OF LEVERAGE; EXISTING INDEBTEDNESS
As of March 31, 1997, the Company's total long-term debt was approximately
$363.6 million. The Company's leverage has important consequences to the
Company's stockholders, including the following: (i) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired; (ii) a
portion of the Company's cash flow from operations must be dedicated to the
payment of the principal of and interest on its existing indebtedness; (iii)
certain of the Company's borrowings, principally those under the Company's
revolving credit facility, are at variable rates of interest, which may make the
Company vulnerable to increases in interest rates; and (iv) the terms of certain
of the Company's indebtedness permit its creditors to accelerate payments upon
certain events of default or a change of control of the Company. As of March 31,
1997, excluding the effect of interest rate hedging arrangements covering $80
million in principal amount of indebtedness, 38.4% of the aggregate borrowings
of the Company were floating rate obligations and 61.6% of the Company's
borrowings were fixed rate obligations, with an overall range of interest rates
from 6 1/2% to 9 7/8% per annum. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" incorporated by reference in this Prospectus.
The Company's revolving credit facility, and the indentures under which the
Company's 9 1/4% Senior Subordinated Notes due 2006 (the "9 1/4% Notes") and
9 7/8% Senior Subordinated Notes due 2003 (the "9 7/8% Notes") were issued (the
"Indentures"), impose financial and other restrictions on the Company and its
subsidiaries, including limitations on the incurrence of additional indebtedness
and limitations on the sale of assets. The Company's revolving credit facility
also requires the Company to (i) make periodic payments of interest, (ii) make
principal payments from the proceeds of certain asset sales and in the event the
Company's outstanding debt exceeds the Borrowing Base (as defined therein),
(iii) maintain certain financial ratios, including interest coverage and
leverage ratios and (iv) maintain a minimum level of consolidated cash flow.
There can be no assurance that these requirements or other material requirements
of the Company's revolving
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<PAGE> 9
credit facility will be met in the future. If they are not, the lenders under
such facility would be entitled to declare the indebtedness thereunder
immediately due and payable. Additionally, in the event of such an acceleration
of indebtedness by the lenders under the Company's revolving credit facility, a
default would be deemed to occur under the terms of the 9 1/4% Notes and the
9 7/8% Notes. In addition, the Indentures contain certain restrictive covenants
that may limit the ability of the Company to engage in certain transactions.
Based upon the current and anticipated level of operations, the Company
believes that its cash flow from operations, together with the proceeds
available under the Company's revolving credit facility and its other sources of
liquidity, will be adequate to meet its anticipated requirements in the
foreseeable future for working capital, capital expenditures, interest payments
and scheduled principal payments. There can be no assurance, however, that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations to service its debt, it may be required to refinance all or a portion
of its existing debt (provided the necessary consents are obtained), or to
obtain additional financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained. The
Company's ability to meet its debt service obligations and reduce total
indebtedness will be dependent not only upon its future drilling and production
performance, but also on oil and natural gas prices, general economic conditions
and financial, business and other factors affecting the Company's operations,
many of which are beyond the Company's control. The Company's strategy and
historical focus has been, and is expected to continue to be, the development,
acquisition, exploitation, exploration, production and marketing of oil and
natural gas. Each of these activities requires substantial capital. The Company
intends to finance such capital expenditures in the future through cash flow
from operations, the incurrence of additional indebtedness and/or the issuance
of additional equity securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" incorporated by reference in this Prospectus.
ESTIMATION OF RESERVES
There are numerous uncertainties in estimating quantities of proved
reserves, future rates of production and the timing and success of development
expenditures, including many factors beyond the control of the Company. Thus,
the reserve data incorporated by reference in this Prospectus are calculated
estimates only. Although the Company believes all of its reserve estimates to be
reasonable, reserve estimates are only estimates and should be expected to
change as additional information becomes available. Furthermore, estimates of
oil and natural gas reserves, of necessity, are projections based on engineering
and production data, and the interpretation thereof, the projection of future
rates of production and the timing and success of development expenditures.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be exactly measured, and the
accuracy of any reserve estimate is a function of the quality of available data
and of engineering and geological interpretation and judgment. Accordingly,
estimates of the economically recoverable quantities of oil and natural gas
attributable to any particular property or group of properties, classifications
of such reserves based on risk of recovery and estimates of the future net cash
flows expected therefrom, which are prepared by different engineers or by the
same engineers at different times, may vary substantially. Moreover, there can
be no assurance that the reserves set forth herein will ultimately be produced
or that the proved undeveloped reserves will be developed within the periods
anticipated. Variances from the estimates contained herein could be material. In
addition, the estimates of future net revenues from proved reserves of the
Company and the present value thereof are based upon certain assumptions about
production levels, prices and costs, which may be inaccurately estimated. With
respect to such estimates, the Company emphasizes that the discounted future net
cash flows should not be construed as representative of the fair market value of
the proved oil and natural gas properties belonging to the Company, as
discounted future net cash flows are based upon projected cash flows that do not
provide for changes in oil and natural gas prices or for changes in expenses and
capital costs. The accuracy of such estimates is highly dependent upon the
accuracy of the assumptions upon which they were based. Actual results may
differ materially from the results estimated. Prospective purchasers of the
Shares are cautioned not to place undue reliance on the reserve data and
resulting cash flow estimates incorporated by reference in this Prospectus.
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The Company accounts for its oil and natural gas producing activities under
the full cost method. This method imposes certain limitations on the carrying
(book) value of proved oil and natural gas properties and requires a writedown
of such assets for accounting purposes if such limits are exceeded. The risk
that the Company will be required to write down the carrying value of its oil
and natural gas properties increases as oil and natural gas prices decline or
remain depressed. If a writedown is required, it would result in a non-cash
charge to earnings. In the past, the Company has not been required to write down
its oil and natural gas properties. However, no assurance can be given that the
Company will not be required to make such a writedown in the future.
REPLACEMENT OF RESERVES
HSR's future performance depends in part upon its ability to acquire, find
and develop additional oil and natural gas reserves that are economically
recoverable. Without successful acquisition, exploration or development
activities, HSR's reserves will decline. No assurance can be given that HSR will
be able to acquire or find and develop additional reserves on an economic basis.
HSR's business is capital intensive and, to maintain its asset base of
proved oil and natural gas reserves, a significant amount of cash flow from
operations must be reinvested in property acquisitions, development or
exploration activities. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, HSR's ability to make
the necessary capital investments to maintain or expand its asset base would be
impaired. Without such investment, HSR's oil and natural gas reserves would
decline.
HSR's strategy will include continued exploitation and exploration of its
existing properties and may include opportunistic acquisitions of other oil and
natural gas properties. The successful acquisition of producing properties
requires an assessment of recoverable reserves, future oil and natural gas
prices and operating costs, potential environmental and other liabilities and
other factors. Such assessments are necessarily inexact and their accuracy
inherently uncertain. There can be no assurance that HSR's acquisition
activities and exploration and development projects will result in increases in
reserves. HSR's operations may be curtailed, delayed or canceled as a result of
a lack of adequate capital and other factors, such as title problems, weather,
compliance with governmental regulations or price controls, mechanical
difficulties or shortages or delays in the delivery of equipment. Furthermore,
while HSR's revenues may increase if prevailing natural gas and oil prices
increase significantly, HSR's finding costs for additional reserves could also
increase. In addition, the costs of exploration and development may materially
exceed initial estimates.
RISKS OF HEDGING AND TRADING TRANSACTIONS
In order to manage its exposure to price risks in the marketing of its oil
and natural gas and in connection with its trading activities, HSR has in the
past entered and may in the future enter into oil and natural gas futures
contracts on the New York Mercantile Exchange ("NYMEX"), fixed price delivery
contracts and financial swaps. Those transactions that are intended to reduce
the effects of volatility of the price of oil and natural gas may limit
potential gains by HSR if oil and natural gas prices were to rise substantially
over the price established by the hedge. In addition, HSR's hedging and trading
may expose HSR to the risk of financial loss in certain circumstances, including
instances in which (i) production is less than expected, (ii) there is a
widening of price differentials between delivery points for HSR's production and
Henry Hub (in the case of NYMEX futures contracts) or delivery points required
by fixed price delivery contracts to the extent they differ from those of HSR's
production, (iii) HSR's customers or the counterparties to its futures contracts
fail to purchase or deliver the contracted quantities of oil or natural gas or
honor their financial commitments or (iv) a sudden, unexpected event materially
affects oil or natural gas prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" incorporated by reference in this Prospectus.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company's operations are subject to various Federal, state and local
governmental laws and regulations, which may be changed from time to time in
response to economic or political factors. Matters
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subject to regulation include, but are not limited to, drilling and operations
permits and approvals, performance bonds, reports concerning operations,
discharge and other permitting requirements, the spacing of wells, unitization
and pooling of properties and taxation.
The Company's operations are subject to complex and constantly changing
environmental laws and regulations adopted by Federal, state and local
governmental authorities. Compliance with such laws has not had a material
adverse effect upon the Company to date. Nevertheless, the discharge of oil,
natural gas or other pollutants into the air, soil or water may give rise to
significant liabilities of the Company to the government and/or third parties,
and may require the Company to incur substantial costs for remediation.
Moreover, the Company has agreed to indemnify certain sellers of producing
properties from whom the Company has acquired properties against certain
liabilities for environmental claims associated with the properties purchased by
the Company. No assurance can be given that existing environmental laws or
regulations, as currently interpreted or as may be in the future, or future laws
or regulations will not materially
adversely affect the Company's results of operations and financial condition or
that material indemnity claims will not arise against the Company with respect
to properties acquired by the Company.
Recently there has been an increased level of regulation of oil and natural
gas activities in Colorado. For example, the Colorado Oil and Gas Conservation
Commission adopted, and is considering the adoption of additional, stricter
regulation of matters such as soil conservation, land reclamation, fluid
disposal and bonding of oil and natural gas companies. Additionally, various
cities and counties are currently reviewing their ordinances to determine the
level of regulatory authority, if any, they should assert over such matters. At
present, it cannot be determined to what degree stricter regulations, if
adopted, would adversely affect the Company's operations.
OPERATING HAZARDS; UNINSURED RISKS
The Company's operations are subject to hazards and risks inherent in
drilling for and production and transportation of oil and natural gas, such as
fires, natural disasters, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline failures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage or impacts to properties of the Company and others, including
suspension of operations. The business is also subject to environmental hazards
such as oil spills, natural gas leaks, ruptures and discharges of toxic natural
gases, which could expose the Company to substantial liability due to pollution
and other environmental damage. The Company's insurance coverages include, but
are not limited to, comprehensive general liability, automobile, personal
injury, bodily injury and property damage, pollution liability, physical damage
on certain assets, workers' compensation and control of well insurance. The
Company believes that its insurance is adequate and customary for companies of a
similar size engaged in operations similar to those of the Company, but losses
could occur for uninsurable or uninsured risks or in amounts in excess of
existing insurance coverage.
COMPETITION
The oil and natural gas industry is highly competitive. The Company
competes in the areas of property acquisitions and the development, production
and marketing of oil and natural gas with major oil companies, other independent
oil and natural gas concerns and individual producers and operators. The Company
also competes with major and independent oil and natural gas concerns in
recruiting and retaining qualified employees. Many of these competitors have
substantially greater financial and other resources than the Company.
USE OF PROCEEDS
The Company will not receive any of the net proceeds from the sale of the
Shares, and all of such proceeds will be received by the Selling Stockholder.
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SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 20, 1997 by the Selling Stockholder, the
number of shares being offered by the Selling Stockholder and the number and
percentage of the outstanding shares to be owned by the Selling Stockholder
after this offering, assuming all of the Shares are sold.
<TABLE>
<CAPTION>
NUMBER OF SHARES
SHARES OF COMMON STOCK OFFERED HEREBY SHARES OF COMMON STOCK
BENEFICIALLY OWNED FOR STOCKHOLDER'S BENEFICIALLY OWNED
PRIOR TO OFFERING ACCOUNT AFTER THE OFFERING
----------------------- ----------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
------------------------ --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Natural Gas Partners, L.P...... 3,611,987(1) 19.64 2,864,225 747,762 4.36
</TABLE>
- ---------------
(1) Includes 740,262 shares subject to issuance within 60 days after June 20,
1997, upon the exercise of warrants and 7,500 shares subject to issuance
upon the exercise of options granted under the 1993 Directors' Plan to
Kenneth A. Hersh and subsequently assigned by him to the Selling
Stockholders.
Kenneth A. Hersh is a member of the board of directors of the Company and a
managing partner of the Selling Stockholder. The Selling Stockholder previously
acted as a subordinated lender to the Company. In consideration of such
financing, the Selling Stockholder acquired, and currently holds, two warrants
to purchase an aggregate of 740,262 shares of Common Stock at an exercise price
of from $6.67 to $10.00 per share. The warrants expire January 31, 2001.
On February 25, 1996, the Company entered into a merger agreement (the
"Merger Agreement") with Tide West Oil Company ("Tide West"). Pursuant to the
Merger Agreement, Tide West was merged into a wholly-owned subsidiary of the
Company. Pursuant to the Merger Agreement, the Merger was consummated in June
1996 following special shareholder meetings of the shareholders of the Company
and Tide West. The Selling Stockholder was Tide West's largest stockholder,
owning approximately 4,550,000 shares, or 46.49%, of the outstanding common
stock of Tide West. Three representatives of the Selling Stockholder were
members of Tide West's board of directors at the time of the Merger. The Company
and the Selling Stockholder entered into a voting agreement whereby the Selling
Stockholder agreed to vote its shares in Tide West in favor of approval of the
Merger Agreement. In consideration of this agreement, the Company agreed to take
such action as is required to appoint a designee of the Selling Stockholder to
the Company's board of directors following consummation of the Merger. Mr.
Hersh, already then a member of the Company's board, was not considered to be
the Selling Stockholder designee. Following the consummation of the Merger, the
Company's board took appropriate action to increase the number of authorized
directors to six, and appointed Mr. Philip B. Smith, a former director,
president and chief executive officer of Tide West, as the nominee of the
Selling Stockholder to the vacancy so created. Pursuant to an agreement entered
into between the Selling Stockholder and Tide West in 1995, the Selling
Stockholder received a fee in 1996 for financial services in the amount of
$150,000 upon consummation of the Merger. Currently, both Mr. Hersh and Mr.
Smith are directors of HSR.
Pursuant to a Registration Rights Agreement between the Company and the
Selling Stockholder dated June 17, 1996, which was entered into in connection
with the Merger, the Company agreed to cause the Registration Statement, of
which this Prospectus is a part, to be kept continuously effective for a period
ending not less than three years from the date of the Registration Rights
Agreement and thereafter until such time as the amount of Registrable Securities
(as defined therein) held by the Selling Stockholder, together with the Selling
Stockholder's affiliates, represents less than 10 percent of the then
outstanding Common Stock.
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PLAN OF DISTRIBUTION
The Shares may be sold from time to time to purchasers directly by the
Selling Stockholder. Alternatively, the Selling Stockholder may from time to
time offer the Shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Stockholder and/or the purchasers of the Shares for whom they
may act as agent. The Selling Stockholder and any underwriters, dealers or
agents that participate in the distribution of the Shares may be deemed to be
underwriters and any profit on the sale of the Shares by them and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of shares is made, to the extent
required, a Prospectus Supplement will be distributed that will set forth the
specific shares to be sold and the terms of the offering, including the name or
names of any underwriters or dealer-agents, any discounts, commissions and other
items constituting compensation from the Selling Stockholder and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The Shares may be sold from time to time in one or more transactions at a
fixed offering price that may be changed or at varying prices determined at the
time of sale or negotiated prices.
The Company has paid substantially all of the expenses incident to the
offering of the Shares, other than commissions and discounts of underwriters,
dealers or agents and the fees and expenses of counsel to the Selling
Stockholder.
VALIDITY OF SECURITIES
The validity of the Shares has been passed upon by Davis, Graham & Stubbs
LLP Denver, Colorado.
EXPERTS
The Consolidated Financial Statements of the Company included in its Annual
Report on Form 10-K for the year ended December 31, 1996 and incorporated by
reference in this Prospectus, to the extent and for the periods indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report dated February 24, 1997, with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
Estimates of historical oil and natural gas reserves of the Company as of
December 31, 1994 and 1995 incorporated by reference herein are based upon
engineering studies prepared by the Company and reviewed by the independent
petroleum engineering firms of Williamson Petroleum Consultants, Inc. and
Netherland, Sewell & Associates, Inc. Estimates of historical oil and natural
gas reserves of the Company as of December 31, 1996 incorporated by reference
herein are based upon engineering studies prepared by the Company. In the
aggregate, 78.4% of the Company's total reserves as of December 31, 1996 were
reviewed by the two engineering firms. Such estimates are incorporated by
reference herein in reliance upon the authority of such firms as experts in such
matters.
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